Saturday, September 7, 2019

Tariffs: Terrific or Terrible?

Roger Carlton, columnist for the Graham Star newspaper is sharing another of his articles with us today. We can learn much from Roger's insightful words. As writers, we cannot be fearful of what some readers might oppose. Writers are here to make the world think, to show others what they might have missed. Let us know what you think. There is no shortage of hot topics for this column. This week Hurricane Dorian has been top of mind as well as a new mass shooting in Texas. Politics and who told the biggest lie or made the biggest gaffe has kept the pundits and talking heads busy as they desperately try to fill 24 hour per day news cycles. Buying Greenland from Denmark was a big story that far exceeded the Louisiana, Alaska and Gadsden purchase coverage many years ago. In my view the story that impacts the most people in Graham County is the trade wars with China.

Let's see if we can agree on some definitions. A "tariff" is used to restrict imports by increasing the price of products or services. There are two types of tariffs. The first is product specific like a $1000 tariff on a vehicle made in another country. The second is ad valorem which means that the tariff is a percentage of the price of a product. In either case, the producing country does not pay the cost of the tariff nor does the importing company. The cost is passed on to the consumer eventually. No one in the producing company or the import and distribution chain is in business for charitable purposes. Costs must eventually be passed on to consumers or you go out of business.

"Free trade" means that goods and services flow without limitation between countries and "restricted trade" means that barriers or limitations are placed on the goods. The cons of free trade are that it erodes national sovereignty and encourages a race to the bottom in wages/benefits, worker protections are diminished and product quality erodes. The pros of free trade are that it encourages competition, lowers prices to consumers and forces companies to innovate. The risks of restricted trade are loss of jobs and market share in the country imposing the tariffs, the receiving country will retaliate with their own tariffs and a trade war may ensue.

A "trade war" is when countries try to damage each other by targeting certain products that are key industries or have political clout which puts pressure on the elected and appointed decision makers. A trade war began after the Smoot Hawley tariffs were enacted in 1930 to protect Depression era industries from foreign imports. It increased 900 tariffs by an average of 40 to 48 percent. This worsened already terrible economies in Europe and was a contributor to World War II as Hitler and Mussolini appealed to economically stressed people who needed someone to blame for their problems other than their own leaders.

"Intellectual property" is a key issue in the confrontation with China. This basically means that our patents and designs/processes are stolen by Chinese manufacturers. There are many cases of this and the cost to protect designs is so great that some companies find it difficult to compete with foreign manufacturers. "Anti-dumping" regulations means that foreign companies cannot sell in the United States at prices below those in their own country and if they do monies are paid into a fund to help the impacted companies in the United States. This is the true reason why the Stanley plant closed because Stanley received nearly $50 million in these dumping payments and only used $9 million to modernize the Robbinsville plant. Stanley lost a lawsuit on this issue and was required to pay back more than $20 million. The company management and directors decided to close the plant rather than pay back the money. The Chinese competition did not cause the plant closing. There is much more to this story but space does not allow a full account.

There is merit to acting tough in this trade war. Our negotiators certainly have the Chinese leadership's attention.The problem is that positions seem to change daily and the desired outcomes have not been explained clearly to those American workers and consumers who are impacted in their already skinny wallets and diminishing 401Ks if they are blessed enough to have one. Case in point. Agricultural exports to China were $24 billion in 2014 but will likely be below $3 billion in 2019. We deserve more than tweets and hollow accusations. Patience is wearing thin.You might like to read other articles by Roger:

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